Pre-Approvals: Are They Mortgage Zombies?

Pre-Approvals:  Are They Mortgage Zombies?

     A recent Wall Street Journal article discussed the decline of Pre-Approval applications among top Lenders and Banks.  The statistics they offer show that Pre-Approvals have pretty much died as a tool or service offered by many Banks and Lender.  Just like Zombies, they are dead, but still walking.

     For purposes of defining a Pre-Approval used within that WSJ article, a Pre-Approval is deemed to be:

     A full Loan Application.  Signed, documented with Credit Reports, Paystubs, W-2's or 1099's, Federal Tax Returns, Bank Statements, processed by a Lender, and submitted to an Underwriter for review. 

     What is NOT included within the Pre-Approval is:

     A Sales Contract, Appraisal, Title Report, Flood Certification, and any property-related issues.

     In other words, the WSJ Pre-Approval pertains to a proposed payment and loan amount in a proposed loan program, at a proposed rate, and a proposed loan to value ratio.  

     Using this strict definition, I agree with the article and the trend they report being seen within our business.  Pre-Approvals within this format and definition are disappearing from many Lender's menu of processes and services. 
     I believe the process (as they describe it) should really be called a "Commitment to Lend", albeit subject to changes in: Property Taxes, Insurance, potential for Homeowner's Association Dues, Interest Rates, Credit Scores, (Credit Reports have expiration dates, typically 90 days after being pulled), and anything else related to having a SPECIFIC property ... AFTER a Contract has been written and secured.
     The process ... again, as it is described in the WSJ ... is rarely utilized, unless the Borrower(s) and loan candidate is marginal in one area of the Approval Process ... i.e. the Approval (or Denial) could go either way.  An experienced Loan Officer will likely know the results (or lack thereof) after doing the "due diligence" of Pre-Qualifying a client.  It's true that in some cases, if there are unusual or extenuating circumstances involved, a LO might want a 2nd opinion from an Underwriter.  But again, an experienced LO typically will have a good idea of the strength of their Borrower.    
     Lending institutions are paying processors and Underwriters to process and approve/deny Pre-Approval Applications.  These types of Apps typically take as much time to process, document, and submit to review as a "real deal" does.  Considering the large percentage of "fallout" from these Applications, they have become to be seen as more of a burden to Lender and Banks, than a positive.
     Very few prospective Buyers are willing to extend time or effort to complete a Full Mortgage Application just to receive a Pre-Approval Letter that goes in tandem with an offer on a property.  Definitely understandable.  And time typically does not allow for it either within the timeframe of viewing and placing offers on homes.  Especially now that homes are selling so briskly in many housing markets and multiple offers are being seen once again on many homes. 

     Still, the requests for Mortgage Pre-Approvals limps on. (Dare I say it, like a Zombie?).  Again, why?
     The only feasible action within the Chicagoland area remains that Buyers/Borrowers be screened well by an experienced Mortgage Lender.  That the Lender pulls a Credit Report, thoroughly interviews a prospect, verifies a Paystub, Bank Statement, W-2, and Tax Return ... then issues a Pre-Approval Letter or Pre-Qualification Letter based on the results found in that documentable information.
    The Wall Street Journal is right ... the Pre-Approval process is not perfect.  But to a great degree, the success found within the process relies on the strength, soundness, and validity of the individual Mortgage Lender's opinion, knowledge, and experience provided.  That's very important to remember as you're researching which Mortgage Lender to work with ...
     *  Looking to Buy a Home or Refinance within the Lincoln-Way area, Will County, or elsewhere in ChicagolandContact me!  I'll put my 36 years of mortgage experience and expertise hard to work on your behalf.
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1 comment:

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